By Suzanne Vita Palazzo
Through a special arrangement, what follows is an excerpt of a current article from Grocery Headquarters magazine, presented here for discussion.
Dollar stores are attracting a larger number of single-person households, empty nesters, and middle- to upper-income households in general - and consequently becoming a bigger headache for grocers.
A big reason for their increased appeal is many are carrying a larger selection of name brand products and grocery items.
"What's happened is that dollar stores have started to recognize the possibilities, and many are putting in coolers and selling milk, bread and soft drinks," said Ray Jones, managing director at Dechert-Hampe & Co. "That's not a total sea change, but it's a pretty significant one, because for awhile they weren't really competing with the grocery stores. They were selling off-brand, less expensive merchandise and distressed merchandise."
But their growing popularity also stems from consumers' increasing desire to make quick, tailored shopping trips. With ample parking, dollar stores are known for being easy to get in and get out, adding convenience to the value equation already associated with them.
"Quick trips are essentially a battleground for all of the major retailers today," said Mr. Jones.
To adapt, some believe grocers have to offer more convenience.
"The supermarkets should be able to see that opportunity for smaller, more convenient, friendlier formats," said Candace Corlett, principal of WSL Strategic Retail. "When you think about the huge supermarkets in the retirement communities - and the scene is now a lot younger than it used to be - but certainly in areas of Florida, everyone thinks in terms of big supermarkets, and there's a growing population that thinks in terms of less is more."
But others believe the value equation has to be better addressed.
The greeting card category is one area in particular where grocers have tried to stem the loss of sales to dollar stores, often by offering 99-cent cards. In supermarkets, however, merchandising the category at discounted prices is not so simple, because many consumers who are shopping for cards at a grocery outlet are specifically looking for high value.
"One of the strategies for success is to satisfy both ends of the spectrum and to understand when she's willing to spend 99 cents and when she's willing to spend $1.99," said Lynn Dolan, vice president of Gartner Greetings.
According to Gartner's president Mark Deuschle, the situation facing greeting cards can be applied to many of the categories faring well in dollar stores.
"Supermarkets need to understand that there's a value need in the category, period, because dollar stores have set a new expectation," he said. "So you better be in value, at least at some level, even if it's only at the introductory price points. And in certain markets you better be heavy into value, because the customer is requiring it. It's not really an option."
He adds that successful grocers know their market and their customer base well enough to deliver an appropriate, customized shopping experience.
"I wouldn't necessarily fight fire with fire. If you can get the value equation close, the consumer won't make the added trip to a dollar store," adds Mr. Deuschle.
Discussion Question: What do you think are some ways grocers can compete better against dollar stores? Which categories should they be concentrating on?